Wisconsin
Unemployment Rate Forecast

Mary Claire Aschenbrenner
Phipps Distinguished Chair

T. Haavelmo Professor

This memo reports a 12-month forecast for the seasonally
adjusted Wisconsin unemployment rate. In addition to point forecasts (the
expected future value of the unemployment rate), the memo also reports 50% and
80% forecast intervals (probable ranges for future values).

The unemployment rate in September 2015 was 4.3%, a slight
drop but roughly constant for the seventh month, following a steady decline
since it had locally peaked at 7.1% in February 2013.

The forecasts are summarized in Figure 1 and Table 1. The
point forecast is for the unemployment rate to stay roughly constant for the
next three months, and then increase slowly over the following nine months, to
5.3% by September 2016. The 80% forecast intervals show that there is
considerable additional uncertainty. There is a possibility that the
unemployment rate could increase as high as 6.5% by September 2016. There is
also a significant probability that the unemployment rate will continue to fall,
as low as 4.1% by the end of 2015. The 50% forecast intervals refine this
uncertainty, showing that it is unlikely the unemployment rate will fall below
4.3% during the next year or increase to over 5.0% before May. Overall, the
forecast is that it is unlikely for there to be a further decrease in the
unemployment rate, and there is more likelihood of an increase in the
unemployment rate than a decrease.

A 50% forecast interval is designed to contain the future
unemployment rate with 50% probability. It is just as likely for the rate to
fall in this interval as out of it. This is the smallest possible interval
which has even odds of containing the future rate. We can think of this
interval as “likely” to contain the future rate.

An 80% forecast interval is designed to contain the future
unemployment rate with 80% probability. We can think of this interval as
“highly likely” to contain the future rate. The 80% interval is designed so
that there is a 10% chance that the future value will be smaller than the
forecast interval, and a 10% chance that the future value will be larger than
the forecast interval.